U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17249 / November 29, 2001
SEC v. Hitsgalore.com, Inc., Stephen J. Bradford, Life Foundation Trust and Jeanette B. Wilcher, Civil Action No. SACV 01-1133 GLT (ANx) (C.D. Cal.).
On November 28, 2001, the Securities and Exchange Commission filed a complaint alleging securities fraud against Hitsgalore.com, Inc. ("Hitsgalore") and its former president, Stephen J. Bradford ("Bradford"). Hitsgalore was an Internet company located in Rancho Cucamonga, California, that maintained a website providing an Internet search engine and leasing advertising space to consumers. The company has changed its name to Diamond Hitts Productions, Inc. and relocated to Irvine, California. The complaint charges Hitsgalore and Bradford with fraud in connection with several press releases issued by the company in 1999 that contained false and misleading statements about a purported investment in Hitsgalore by a Scottsdale, Arizona, for-profit trust, Life Foundation Trust ("Life Foundation"). The complaint also charges Life Foundation and its trustee and administrator, Jeanette B. Wilcher ("Wilcher"), a resident of Scottsdale, Arizona, with aiding and abetting Hitsgalore's and Bradford's fraud and seeks disgorgement of over $1 million from Life Foundation as a result of its illegal sale of Hitsgalore stock in violation of federal securities registration requirements.
The Commission's action, filed in federal court in Los Angeles, alleges that between April 16 and May 10, 1999, Hitsgalore and Bradford issued three false and misleading press releases regarding: (1) a purported $10 million private placement investment by Life Foundation in Hitsgalore, and (2) an agreement in principle between Life Foundation and Hitsgalore for an additional $100 million investment in Hitsgalore. Bradford drafted all three press releases. Life Foundation's Wilcher conducted all negotiations on Life Foundation's behalf and assisted Bradford in drafting, reviewing and approving the April 16 press release prior to its dissemination. The press releases falsely indicated that Life Foundation would be making immediate payments to Hitsgalore in return for shares in the company, and that Life Foundation would be holding all of its Hitsgalore shares as a long-term investor. However, Life Foundation was not required to make any payments until one year after the agreements, it sold most of its Hitsgalore shares within weeks of the press releases at a profit of over $1 million, and it never paid Hitsgalore any money for the shares. The fraudulent press releases caused a dramatic rise in the price of Hitsgalore's stock, quoted on the OTCBB from $6.3125 to a high of $20.125.
The Commission's complaint alleges that Hitsgalore and Bradford violated the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, that Life Foundation and Wilcher aided and abetted those violations and that Life Foundation violated the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933.
The Commission's complaint seeks permanent injunctions against all the defendants, civil penalties against Bradford, Life Foundation and Wilcher, and disgorgement of the approximately $1 million in ill-gotten gains obtained by Life Foundation in connection with the illegal sale of its Hitsgalore stock.
Simultaneous with the filing of the Commission's complaint, Hitsgalore and Bradford settled the action by consenting to a permanent injunction, without admitting or denying the allegations in the complaint, for the violations outlined above.
For tips on how to avoid Internet "pump-and-dump" stock manipulation schemes, visit http://www.sec.gov/investor/online/pump.htm. For more information about Internet fraud, visit http://www.sec.gov/divisions/enforce/internetenforce.htm. To report suspicious activity involving possible Internet fraud, visit http://www.sec.gov/complaint.shtml.